rkhay4, Home Buyer in Ocean City, NJ

I have a 2nd home. It is a 1st floor of a 2 unit condo. I now want to buy the 2nd floor unit but told that FHA won't permit one person to own both

Asked by rkhay4, Ocean City, NJ Sat Aug 10, 2013

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Do you have alternatives to an FHA Loan? By getting conventional financing, you can easily overcome this stumbling block...
1 vote Thank Flag Link Sat Aug 10, 2013
Great thoughts Kary. Thank you.
0 votes Thank Flag Link Sun Aug 11, 2013
Ray suggested below that there is more than one way to skin a cat. I will add another possible option to consider.

A two unit condo is a really stupid idea in the first place. It basically requires unanimous approval because the only other voting option is a tie. This property would have probably been better suited for a townhouse type of fee ownership, but that's not workable with the units being one on top of the other.

My solution is perhaps a bit complicated, but I would look into the possibility of simultaneously dissolving the condo association, create a tenant in common situation with the other owner, and then buying out that other owner's interest. You would basically be converting the property from a condo to a duplex. This obviously would require that you consult an attorney to effectuate that change.

I see several downsides doing that, however. First, you'd likely need to refinance your existing mortgage, and the existence of that mortgage might defeat my plan. Second, the total value of the building as a duplex is probably significantly less than the value as two condo units (although that's resale value, not rental value). Third, the legal fees would likely be significant. Forth, I'm not sure even what state we're dealing with here. If it's not Washington there could be other issues, or there might be issues doing that under Seattle's ordinances if this really is in the 98103.

If you really want to expand your investment in rental properties, it might be best to look elsewhere. Don't get too focused on this property just because you're familiar with it. And again, if you do want to explore this possibility, you will need to consult an attorney. That is not a do it yourself project. It's possible you might incur attorney fees and find out you cannot accomplish the task.

That brings up another option. Sell your interest in this condo and buy a duplex. Of course you'd need to look into your financing options for doing that too.
0 votes Thank Flag Link Sun Aug 11, 2013
Being a 2-unit condo, the associate is simply me and the current owner. The Condo Association documents permit leasing for residential purposes only which has been complied with and will be the go-forward expectation. The Condo Association By- Laws do not specify any owner occupied vs renter occupied percentage requirements.
0 votes Thank Flag Link Sun Aug 11, 2013
As I understand it, it's not how much of the year, but the situation (as defined by the condo association) when the loan is applied for.
0 votes Thank Flag Link Sat Aug 10, 2013
Thanks Jim. Interesting. Whilie I will be renting out both units for about 8 weeks per year, I fully expect to use each property for personal use the remaining weeks kn the year. In other words each unit will be owner occupied more than 50% of the year. A plus to secure a conventional?
0 votes Thank Flag Link Sat Aug 10, 2013
I would bet that the problem with getting an FHA on this is the 75% rule, which will be a problem with any conventional loan as well. You'll probably need a portfolio loan, which will cost you more, but will side-step the 75% rule, which is a Fannie Mae guideline that says to sell the loan the condo must have at least 75% owner occupants. With just two units, if you own both, that's only 50% owner occupied, unless you live in both. This rule is relatively new, I believe it came to be after the bubble, so people who bought before then are unfamiliar with it (did you buy before the bubble?). Best of luck in your purchase...
0 votes Thank Flag Link Sat Aug 10, 2013
If you are looking to buy a second condo in the Seattle area, as it looks like you are, I would be happy to help you with that & discuss your options. Please contact me directly & we can do it all remotely if you are still in New Jersey.

Good luck to you in any case,
Jirius Isaac
Isaac Real Estate Team
Champions Real Estate Services
TriStar Finance #MLO-107799
Office: 425-483-6849 Cell: 206-841-9976
Winner of Seattle Magazines 5 Star
Real Estate Agent Best in Client Satisfaction Award
Mortgage Loan Originator Best in Client Satisfaction
Web Reference: http://TriStarFinance.com
0 votes Thank Flag Link Sat Aug 10, 2013
There's more than one way to skin a cat, as the saying goes. It's likely you have several options for financing. Talk with a mortgage broker. Mortgage brokers have access to a wide range of lending products. With 30% down you can skip FHA. Also, be sure to check with your HOA regarding ownership of multiple units. Many HOA's have restrictions on renting or other rules that might impact you. Good luck.
0 votes Thank Flag Link Sat Aug 10, 2013
Bob, Steven and Beth - thank you for responding. I like Bob's suggestion on a conventional mortgage. I have a 799 credit score, will be putting 30% down on a $600K property and was recently quoted a 4.75% 30 year FHA with Geenlight Loans. What can I expect with conventional - more down money? higher or lower interest rate? etc?
0 votes Thank Flag Link Sat Aug 10, 2013
Great credit scores and large down payments ALWAYS good. While there are so many variations affecting rates, that piece is a question for a mortgage professional.
Flag Sat Aug 10, 2013
My suggestion is that you speak with a qualified Mortgage lender and discuss your overall situation. There may be a few alternative solutions by clearly more information is needed. Contact me and I'll be happy to put you in touch with a mortgage professional.
0 votes Thank Flag Link Sat Aug 10, 2013
Probably best to contact FHA
0 votes Thank Flag Link Sat Aug 10, 2013
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